High growth rate in Non-Performing Loans in Pakistan

SBP has indicated an alarming growth in Non-Performing loans in banks and other financial institutions. Although the growth rate has remained low in the 2nd quarter 2010, yet it has reached to the level of 473 billion rupees. For the last two years, especially after financial crises faced by the banks and financial institutions all over the world, the banks and other financial institutions in Pakistan have also slowed down their loan / advances offering services to the private sector. Due to bad economic situation and very low development activities in Industrial sector, the banks and other institutions are either offering loans at very high interest rates or investing in government owned securities.

This increase in NPL level can rightly be associated with the bad economic situation due to different problems like energy crises, load-shedding and prices hike in raw materials and other utilities; faced by industrialists. This increase in NPLs has not only created hesitation in banks in offering new loans but also urged them to play safe thru’ investing in government securities.